Annual Report 1999
Dear Fellow Shareholders,
The Van Wagoner Capital Appreciation and Growth Funds significantly outpaced
major market indices including the S&P 500/R Index in 1999.<F1>
Our Funds had exceptional performance in 1999. As a shareholder myself, I was
certainly happy with this year's return - but please understand this was a
unique time for the markets and the Van Wagoner Funds. It's unrealistic to
expect such returns to continue. In today's changing markets, one constant is
our investment style. Built on a distinctive style of research and pure focus
on emerging growth stocks, it enabled us to outperform in 1999.
Despite interest rate hikes and Y2K fears, investors swarmed into technology
issues across all market capitalizations. Small-cap technology companies did
particularly well, with the Russell 2000 surpassing the broader S&P 500/R Index
for the first time in six years. In a similar fashion, the smaller
capitalization Van Wagoner Capital Appreciation Fund outperformed the larger
capitalization Growth Fund.
Our bottom-up research helped us safely navigate the rocky waters of earnings
reports. In fact, about 95% of the companies we held met or exceeded earnings
estimates in 1999. I really have to give the analysts credit for a great year.
Our research also led us to a higher cash position mid-year, as we foresaw a dip
in technology due to valuations. The dip came, as did the Taiwanese earthquake,
in the third quarter. We used these opportunities to boost our overall
technology exposure.
Our emphasis on emerging growth stocks with strong fundamentals resulted in
little sector rotation this year. We maintained a well-diversified portfolio of
stocks, with a core concentration in technology. Here's a sector-by-sector look
at where we stood in 1999.
COMPUTER NETWORKING infrastructure continues to be an area of emphasis. With
Internet traffic growing even faster than expected and large corporations
upgrading their networks, computer networking companies are well-positioned for
growth.
ENERGY companies show a bullish long-term outlook. We reallocated technology
profits into this sector later in the year, increasing our exposure as we took
advantage of seasonal weakness to buy innovative companies.
HEALTH CARE played a smaller role in our portfolios in 1999. The sector was
under pressure from government spending cuts, Year 2000 budget constraints, and
regulatory scrutiny. Toward the end of the year, we started to see opportunities
in medical devices and drug discovery. Improving sentiment in Washington, D.C.,
may provide a favorable backdrop for health care services companies in 2000.
SEMICONDUCTORS remain particularly attractive; we increased our holdings
throughout the year. The Taiwanese earthquake in September hit this sector
especially hard because many leading chip companies outsource the production of
the chips they design to Taiwanese foundries. We like the long-term fundamentals
for this sector, so we took advantage of the short-term volatility in
semiconductor stocks to add to our favorite positions.
CONSUMER GOODS weighting increased in the first quarter of the year as our
research showed strong retail spending and consumer sentiment. We reduced our
exposure to negligible after May, believing the Fed's desire to slow domestic
growth would affect discretionary consumer spending.
SOFTWARE stocks represented our largest sector through 1999. We continue to
favor web-enablement companies. It's now essential for corporations of all sizes
to have a presence on the web, to conduct business, provide customer support, or
streamline supply chains. Many of the companies beaten down by Y2K concerns
early in the year popped back at the end of the year, due to the enormous
opportunities that exist for companies with solutions-oriented products.
TELECOMMUNICATIONS companies have exploded, fueled by deregulation and the
Internet. We focus on companies that will benefit from increased Internet usage
and increased bandwidth availability.
Our analysts' commitment to diligent fundamental research continued to reward
shareholders throughout the year. Our conversations with company management,
venture capitalists, vendors and suppliers helped us uncover new trends and
investment ideas that we're excited about for the year 2000 and beyond.
As we begin the 21st century, amid concerns over the Fed raising interest rates
to slow the economy, the Van Wagoner Funds will continue to invest in emerging
growth companies with the potential for long-term appreciation. Short-term
volatility will undoubtedly continue; it's the nature of emerging growth
investing. I want to thank you, our shareholders, for holding firm with us. Like
you, everyone on the Van Wagoner investment team is a shareholder, and we look
forward to the years ahead.
Sincerely,
Garrett R. Van Wagoner
<F1> Please see page 3 for the total returns of the Funds and their benchmark,
the S&P 500/R Index. Although the Funds are aggressive growth funds, they
differ based on the market capitalizations of the stocks, and the sectors in
which they invest. This will affect their relative performance. For example,
during 1999, the Funds' performance benefited from their investments in the
technology sectors.
<PAGE>
CAPITAL APPRECIATION FUND
Capital S&P 500
Appreciation Composite
Fund Stock Index
------------ ------------
12/31/96 $10,000 $10,000
12/31/97 $10,456 $13,336
12/31/98 $18,630 $17,147
12/31/99 $61,620 $20,756
- ---------------------------------------------
Total Return
For the periods ended 12/31/99
- ---------------------------------------------
One Year 230.76%
Average Annual Since Inception 83.33%
- ---------------------------------------------
This chart assumes an initial investment of $10,000 made after the close of
business on 12/31/96 (Commencement). Returns shown here and in the table are
based on net change in NAV. Performance figures reflect fee waivers in effect
and represent past performance which is no guarantee of future results. The
investment return and principal value of an investment in Van Wagoner Funds will
fluctuate so that an investor's shares in the Funds, when redeemed, may be worth
more or less than their original cost.
The S&P 500 Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
GROWTH FUND
S&P 500
Composite
Growth Fund Stock Index
------------ ------------
12/31/96 $10,000 $10,000
12/31/97 $10,574 $13,336
12/31/98 $18,278 $17,147
12/31/99 $50,595 $20,756
- ---------------------------------------------
Total Return
For the periods ended 12/31/99
- ---------------------------------------------
One Year 176.81%
Average Annual Since Inception 71.67%
- ---------------------------------------------
This chart assumes an initial investment of $10,000 made after the close of
business on 12/31/96 (Commencement). Returns shown here and in the table are
based on net change in NAV. Performance figures reflect fee waivers in effect
and represent past performance which is no guarantee of future results. The
investment return and principal value of an investment in Van Wagoner Funds will
fluctuate so that an investor's shares in the Funds, when redeemed, may be worth
more or less than their original cost.
The S&P 500 Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
<PAGE>
VAN WAGONER CAPITAL APPRECIATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Shares Value
- ----------- -----------
COMMON AND PREFERRED STOCKS 73.54%
COMPUTER SOFTWARE - EDUCATION 0.48%
833 Tavolo, Inc.<F1><F2> $8,996
----------
COMPUTER SOFTWARE - ENTERPRISE 4.67%
2,500 Acta Technology, Inc.<F1><F2> 12,500
300 Ariba, Inc.<F1> 53,212
5,890 Eprise Corp.<F1><F2> 9,070
167 Event411.Com, Inc.<F1><F2> 5,010
300 Impresse Corp.<F1><F2> 3,717
7 Reciprocal, Inc.<F1><F2> 3,183
----------
86,692
----------
COMPUTER SOFTWARE - INTERNET 16.48%
600 Accrue Software, Inc.<F1> 32,475
100 Art Technology Group, Inc.<F1> 12,813
1,011 Bluestone Software, Inc.<F1><F3> 102,445
100 Exodus Communications, Inc.<F1> 8,881
2,924 iVillage, Inc.<F1> 59,211
228 Onvia.Com, Inc.<F1><F2> 3,126
1,605 Preview Systems, Inc.<F1><F3> 85,632
150 Screaming Media.Net, Inc.<F1><F2> 1,680
----------
306,263
----------
COMPUTER SOFTWARE - MEDICAL 7.21%
15,000 OnHealth Network Co.<F1> 134,062
----------
COMPUTER SOFTWARE - SECURITY 0.51%
50 VeriSign, Inc.<F1> 9,547
----------
COMPUTERS - GRAPHICS 0.46%
50 Micromuse, Inc.<F1> 8,500
----------
COMPUTERS - LOCAL NETWORKS 2.91%
50 Citrix Systems, Inc.<F1> 6,150
500 NetSolve, Inc.<F1> 15,750
2,221 Sitara Networks, Inc.<F1><F2> 8,551
5,000 Top Layer Networks, Inc.<F1><F2> 7,800
200 Visual Networks, Inc.<F1> 15,850
----------
54,101
----------
<PAGE>
VAN WAGONER CAPITAL APPRECIATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Shares Value
- ----------- -----------
COMPUTERS - MEMORY DEVICES 1.25%
3,002 Lexar Media, Inc.<F1><F2> $7,775
100 Network Appliances, Inc.<F1> 8,306
50 VERITAS Software Corp.<F1> 7,156
----------
23,237
----------
COMPUTERS - MINI/MICRO 0.60%
1,750 eMachines, Inc.<F1><F2> 11,172
----------
COMPUTERS - RETAIL/WHOLESALE 1.82%
300 Emulex Corp.<F1> 33,750
----------
COMPUTERS - SOFTWARE 0.08%
1,000 Entevo Corp.<F1><F2> 1,500
----------
ELECTRONICS - MISCELLANEOUS COMPONENTS 0.55%
150 RF Micro Devices, Inc.<F1> 10,266
----------
ELECTRONICS - SEMICONDUCTOR EQUIPMENT 2.92%
500 Cobalt Networks, Inc.<F1> 54,188
----------
ELECTRONICS - SEMICONDUCTOR MANUFACTURING 10.07%
100 PMC-Sierra, Inc.<F1> 16,031
100 QLogic Corp.<F1> 15,987
2,433 Sandcraft, Inc.<F1><F2> 6,010
250 SDL, Inc.<F1> 54,500
3,260 StorageNetworks, Inc.<F1><F2> 16,039
2,500 Transmeta Corp.<F1><F2> 25,000
450 TranSwitch Corp.<F1> 32,653
400 Vitesse Semiconductor Corp.<F1> 20,975
----------
187,195
----------
FINANCE - INVESTMENT BROKER 2.54%
500 The Goldman Sachs Group, Inc. 47,094
----------
INTERNET - E-COMMERCE 2.58%
300 eToys, Inc.<F1> 7,875
892 HomeGrocer.com, Inc.<F1><F2> 10,347
3,409 Pointshare Corp.<F1><F2> 9,375
2,340 SmarterKids.com, Inc.<F1><F3> 14,132
150 Stamps.com, Inc.<F1> 6,244
----------
47,973
----------
<PAGE>
VAN WAGONER CAPITAL APPRECIATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Shares Value
- ----------- -----------
INTERNET - NETWORK SECURITY/SOLUTIONS 1.84%
200 CacheFlow, Inc.<F1> $26,138
100 WebTrends Corp.<F1> 8,100
----------
34,238
----------
INTERNET SERVICE PROVIDER/CONTENT 1.04%
500 Exactis.com, Inc.<F1> 12,156
149 Lifeminders.Com, Inc.<F1><F3> 7,098
----------
19,254
----------
MEDICAL - BIOMEDICAL/GENETICS 1.91%
500 Maxygen, Inc.<F1> 35,500
----------
OIL & GAS - DRILLING 2.79%
10,000 Key Energy Group, Inc.<F1> 51,875
----------
OIL & GAS - MACHINERY/EQUIPMENT 2.21%
1,350 Dril-Quip, Inc.<F1> 41,006
----------
RETAIL - MAIL ORDER/DIRECT 0.47%
1,000 garden.com, Inc.<F1> 8,688
----------
TELECOMMUNICATIONS - EQUIPMENT 8.15%
125 Allegiance Telecom, Inc.<F1> 11,531
300 Copper Mountain Networks, Inc.<F1> 14,625
68 Corvis Corp.<F1><F2> 5,476
500 E-Tek Dynamics, Inc.<F1> 67,313
4 Floware Wireless Systems<F1><F2> 1,558
1,000 Netro Corp.<F1> 51,000
----------
151,503
----------
TOTAL COMMON AND PREFERRED STOCKS
(cost $507,226) 1,366,600
----------
<PAGE>
VAN WAGONER CAPITAL APPRECIATION FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Contracts Value
- ----------- -----------
OPTIONS PURCHASED 1.58%
4 Put option on S&P 500 Index,
expiring 6/1/00 @ 1475 $29,375
----------
TOTAL OPTIONS PURCHASED
(cost $29,950) 29,375
----------
TOTAL INVESTMENTS 75.12%
(cost $537,176) 1,395,975
Other Assets less Liabilities 24.88% 462,442
----------
NET ASSETS 100.00% $1,858,417
==========
Number
of Shares
- -----------
SECURITIES SOLD SHORT
1,500 Nasdaq-100 Shares<F1> $274,125
----------
TOTAL SECURITIES SOLD SHORT
(proceeds $276,791) $274,125
==========
<F1> Non-income producing
<F2> Preferred stock acquired in a private placement transaction;
resale to the public may require registration or sale only to
qualified institutional buyers. Security is valued under
procedures established by the Board of Directors.
<F3> Security acquired in a private placement transaction; resale
may be limited due to certain restrictions. Security is valued
under procedures established by the Board of Directors.
See notes to financial statements.
<PAGE>
VAN WAGONER GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Shares Value
- ----------- -----------
COMMON AND PREFERRED STOCKS 94.08%
COMPUTER SOFTWARE - EDUCATION 0.67%
833 Tavolo, Inc.<F1><F2> $8,996
----------
COMPUTER SOFTWARE - ENTERPRISE 5.99%
2,500 Acta Technology, Inc.<F1><F2> 12,500
300 Ariba, Inc.<F1> 53,212
1,975 Eprise Corp.<F1><F2> 3,042
166 Event411.Com, Inc.<F1><F2> 4,980
300 Impresse Corp.<F1><F2> 3,717
5 Reciprocal, Inc.<F1><F2> 2,274
----------
79,725
----------
COMPUTER SOFTWARE - INTERNET 19.65%
100 Art Technology Group, Inc.<F1> 12,812
1,011 Bluestone Software, Inc.<F1><F3> 102,413
2,924 iVillage, Inc.<F1> 59,211
202 Onvia.Com, Inc.<F1><F2> 2,769
1,550 Preview Systems, Inc.<F1><F3> 82,698
150 Screaming Media.Net, Inc.<F1><F2> 1,680
----------
261,583
----------
COMPUTER SOFTWARE - MEDICAL 10.07%
15,000 OnHealth Network Co.<F1> 134,063
----------
COMPUTER SOFTWARE - SECURITY 0.72%
50 VeriSign, Inc.<F1> 9,547
----------
COMPUTERS - LOCAL NETWORKS 5.03%
300 Cisco Systems, Inc.<F1> 32,137
50 Citrix Systems, Inc.<F1> 6,150
500 NetSolve, Inc.<F1> 15,750
2,000 Sitara Networks, Inc.<F1><F2> 7,700
3,334 Top Layer Networks, Inc.<F1><F2> 5,201
----------
66,938
----------
Computers - Memory Devices 0.49%
2,500 Lexar Media, Inc.<F1><F2> 6,475
----------
<PAGE>
VAN WAGONER GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Shares Value
- ----------- -----------
COMPUTERS - MINI/MICRO 2.12%
400 Dell Computer Corp.<F1> $20,400
1,232 eMachines, Inc.<F1><F2> 7,865
----------
28,265
----------
COMPUTERS - SOFTWARE 1.83%
703 Entevo Corp.<F1><F2> 1,055
200 Microsoft Corp.<F1> 23,350
----------
24,405
----------
ELECTRONICS - SEMICONDUCTOR EQUIPMENT 4.92%
100 ASM Lithography Holding N.V.<F1> 11,375
500 Cobalt Networks, Inc.<F1> 54,188
----------
65,563
----------
ELECTRONICS - SEMICONDUCTOR MANUFACTURING 5.76%
100 PMC-Sierra, Inc.<F1> 16,031
100 QLogic Corp.<F1> 15,988
2,000 Sandcraft, Inc.<F1><F2> 4,940
3,000 StorageNetworks, Inc.<F1><F2> 14,760
2,500 Transmeta Corp.<F1><F2> 25,000
----------
76,719
----------
Finance - Investment Broker 3.54%
500 The Goldman Sachs Group, Inc. 47,094
----------
INTERNET - E-COMMERCE 2.86%
300 eToys, Inc.<F1> 7,875
299 HomeGrocer.com, Inc.<F1><F2> 3,468
2,500 Pointshare Corp.<F1><F2> 6,875
2,250 SmarterKids.com, Inc.<F1><F3> 13,589
150 Stamps.com, Inc.<F1> 6,244
----------
38,051
----------
INTERNET SERVICE PROVIDER/CONTENT 1.36%
500 Exactis.com, Inc.<F1> 12,156
125 Lifeminders.com, Inc.<F1><F3> 5,965
----------
18,121
----------
<PAGE>
VAN WAGONER GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Shares Value
- ----------- -----------
MEDIA - CABLE TV 2.57%
300 Adelphia Communications Corp.<F1> $19,688
200 Time Warner, Inc. 14,488
----------
34,176
----------
MEDICAL - BIOMEDICAL/GENETICS 2.67%
500 Maxygen, Inc.<F1> 35,500
----------
OIL & GAS - DRILLING 3.90%
10,000 Key Energy Group, Inc.<F1> 51,875
----------
RETAIL - MAIL ORDER/DIRECT 0.65%
1,000 garden.com, Inc.<F1> 8,688
----------
TELECOMMUNICATIONS - CELLULAR 1.89%
150 General Instrument Corp.<F1> 12,750
250 Vodafone AirTouch<F1> 12,375
----------
25,125
----------
TELECOMMUNICATIONS - EQUIPMENT 17.39%
324 AT&T Corp. 16,443
300 Copper Mountain Networks, Inc.<F1> 14,625
57 Corvis Corp.<F1><F2> 4,590
250 E-Tek Dynamics, Inc.<F1> 33,656
3 Floware Wireless Systems<F1><F2> 1,168
200 Lucent Technologies, Inc. 14,963
1,000 Netro Corp.<F1> 51,000
500 Nokia Ab ADR 95,000
----------
231,445
----------
TOTAL COMMON AND PREFERRED STOCKS
(cost $534,684) 1,252,354
----------
<PAGE>
VAN WAGONER GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
Number
of Contracts Value
- ----------- -----------
OPTIONS PURCHASED 1.65%
3 Put option on S&P 500 Index,
expiring 6/1/00 @ 1475 $22,031
----------
TOTAL OPTIONS PURCHASED
(cost $22,463) 22,031
----------
TOTAL INVESTMENTS 95.73%
(cost $557,147) 1,274,385
Other Assets less Liabilities 4.27% 56,837
----------
NET ASSETS 100.00% $1,331,222
==========
Number
of Shares
- -----------
SECURITIES SOLD SHORT
1,250 Nasdaq-100 Shares<F1> $228,438
----------
TOTAL SECURITIES SOLD SHORT
(proceeds $230,659) $228,438
==========
<F1> Non-income producing
<F2> Preferred stock acquired in a private placement transaction; resale to the
public may require registration or sale only to qualified institutional
buyers. Security is valued under procedures established by the Board of
Directors.
<F3> Security acquired in a private placement transaction; resale may be limited
due to certain restrictions. Security is valued under procedures
established by the Board of Directors.
See notes to financial statements.
<PAGE>
VAN WAGONER FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
Capital
Appreciation Growth
Fund Fund
----------- -----------
ASSETS:
Investments, at value (cost $537,176 and
$557,147, respectively) $1,395,975 $1,274,385
Cash - -
Deposit at broker for short sales 101,667 101,667
Receivable from broker for proceeds
on securities sold short 276,791 230,659
Receivable for investments sold 644,668 544,881
Interest and dividends receivable 2,968 2,319
Receivable from Adviser 4,674 4,500
Prepaid expenses and other assets 5,542 5,793
----------- -----------
Total Assets 2,432,285 2,164,204
----------- -----------
LIABILITIES:
Payable for investments purchased 73,725 66,237
Payable to custodian 214,490 527,648
Securities sold short, at value (proceeds of
$276,791 and $230,659, respectively) 274,125 228,438
Accrued investment advisory fees 2,673 1,797
Accrued expenses and other liabilities 8,855 8,862
----------- -----------
Total Liabilities 573,868 832,982
----------- -----------
NET ASSETS $1,858,417 $1,331,222
=========== ===========
NET ASSETS CONSIST OF:
Capital stock $996,980 $611,542
Accumulated net realized gain (loss)
on investments (28) 221
Net unrealized appreciation on investments 861,465 719,459
----------- -----------
Net Assets $1,858,417 $1,331,222
=========== ===========
CAPITAL STOCK, $0.0001 PAR VALUE
Authorized 100,000,000 100,000,000
Issued and outstanding 70,893 58,323
NET ASSET VALUE, REDEMPTION PRICE,
AND OFFERING PRICE PER SHARE (NET
ASSETS/SHARES OUTSTANDING) $26.21 $22.82
=========== ===========
See notes to financial statements.
<PAGE>
VAN WAGONER FUNDS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Capital
Appreciation Growth
Fund Fund
----------- -----------
INVESTMENT INCOME:
Interest $21,602 $17,160
Dividends 199 1,626
---------- ----------
Total Investment Income 21,801 18,786
---------- ----------
EXPENSES:
Fund accounting and administration fees 61,667 61,667
Investment advisory fees 21,414 15,095
Professional fees 11,282 11,298
Custody fees 9,146 7,422
State registration fees 5,972 5,719
Directors' fees and expenses 3,942 3,915
Miscellaneous 406 474
---------- ----------
Total expenses before waivers and reimbursements 113,829 105,590
Less: Waivers and reimbursements of expenses (80,423) (76,154)
---------- ----------
Net Expenses 33,406 29,436
---------- ----------
NET INVESTMENT LOSS (11,605) (10,650)
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 1,324,890 990,901
Net realized loss on options purchased (21,117) (18,431)
Net change in unrealized appreciation
and depreciation on investments 625,516 502,764
---------- ----------
Net Gain on Investments 1,929,289 1,475,234
---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,917,684 $1,464,584
========== ==========
See notes to financial statements.
<PAGE>
VAN WAGONER FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Capital Appreciation Fund Growth Fund
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment loss $(11,605) $(1,526) $(10,650) $(1,330)
Net realized gain on investments 1,324,890 272,542 990,901 296,829
Net realized loss on options purchased (21,117) (10,458) (18,431) (11,145)
Net change in unrealized appreciation and depreciation
on investments 625,516 172,140 502,764 134,119
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations 1,917,684 432,698 1,464,584 418,473
------------ ------------ ------------ ------------
DISTRIBUTIONS:
Net realized gains (1,249,945) (24,567) (912,068) (93,710)
In excess of net realized gains (519) (40,725) (375) (48,205)
------------ ------------ ------------ ------------
Total distributions (1,250,464) (65,292) (912,443) (141,915)
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 674,075 25,000 - 25,000
Proceeds from reinvestment of dividends 488,670 - 143,433 -
Redemption of shares (842,156) (826,147) (162,500) (825,990)
------------ ------------ ------------ ------------
Net increase (decrease) from share transactions 320,589 (801,147) (19,067) (800,990)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 987,809 (433,741) 533,074 (524,432)
NET ASSETS:
Beginning of year 870,608 1,304,349 798,148 1,322,580
------------ ------------ ------------ ------------
End of year $1,858,417 $870,608 $1,331,222 $798,148
============ ============ ============ ============
TRANSACTIONS IN SHARES:
Shares sold 18,429 2,249 - 2,152
Shares issued in reinvestment of dividends 20,891 - 10,182 -
Shares redeemed (26,286) (88,011) (8,618) (83,464)
------------ ------------ ------------ ------------
Net increase (decrease) 13,034 (85,762) 1,564 (81,312)
============ ============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
VAN WAGONER FUNDS, INC.
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
Capital Appreciation Fund Growth Fund
----------------------------------- -----------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.05 $9.08 $10.00 $14.06 $9.58 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.16) (0.03) (0.11) (0.18) (0.02) (0.12)
Net realized and unrealized gains on investments 34.32 7.13 0.54 24.58 7.00 0.68
-------- -------- -------- -------- -------- --------
Total from investment operations 34.16 7.10 0.43 24.40 6.98 0.56
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS:
Net realized gains (22.99) (0.43) - (15.63) (1.65) -
In excess of net realized gains (0.01) (0.70) (1.35) (0.01) (0.85) (0.98)
-------- -------- -------- -------- -------- --------
Total distributions (23.00) (1.13) (1.35) (15.64) (2.50) (0.98)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $26.21 $15.05 $9.08 $22.82 $14.06 $9.58
======== ======== ======== ======== ======== ========
TOTAL RETURN 230.76% 78.18% 4.56% 176.81% 72.86% 5.74%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (000s) $1,858 $871 $1,304 $1,331 $798 $1,323
Ratio of expenses to average net assets, net of
waivers and reimbursements 1.95% 1.95% 1.95% 1.95% 1.95% 1.95%
Ratio of net investment loss to average net assets,
net of waivers and reimbursements (0.68)% (0.21)% (1.36)% (0.70)% (0.18)% (1.40)%
Ratio of expenses to average net assets, before
waivers and reimbursements 6.65% 17.13% 11.78% 7.01% 16.58% 11.60%
Ratio of net investment loss to average net assets,
before waivers and reimbursements (5.38)% (15.39)% (11.19)% (5.76)% (14.81)% (11.05)%
Portfolio turnover rate 270% 1,263% 625% 244% 1,233% 593%
</TABLE>
See notes to financial statements.
<PAGE>
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Organization
------------
Van Wagoner Funds, Inc. (the "Company") was organized on October 18, 1995
as a Maryland corporation and is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end management investment company.
The Capital Appreciation Fund and the Growth Fund (collectively, the
"Funds") are separate, diversified investment portfolios of Van Wagoner
Funds, Inc. Substantially all of the shares issued by the Funds are held
by an affiliate of the Adviser.
(2) Significant Accounting Policies
-------------------------------
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements.
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") which require management to make
estimates and assumptions at the date of the financial statements. Actual
results could differ from such estimates. Certain percentages in the
Financial Highlights have been restated to conform to current year
presentation.
(a) Investment Valuation - A security traded on a recognized stock
exchange is valued at the last sale price. If no sale is reported,
the most current bid price is used. All other securities for which
over-the-counter market quotations are readily available are valued
at the last sale price. Debt securities which will mature in more
than 60 days are valued at prices furnished by a pricing service.
Securities which will mature in 60 days or less are valued at
amortized cost, which approximates market value. Any securities for
which market quotations are not readily available are valued at their
fair value as determined in good faith by the Funds' Adviser under
supervision of the Board of Directors.
(b) Expenses - The Funds are charged for those expenses that are directly
attributable to each Fund, such as advisory and custodian fees.
Expenses that are not directly attributable to a portfolio are
typically allocated among the portfolios in proportion to their
respective net assets.
<PAGE>
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(c) Federal Income Taxes - Each Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a
regulated investment company and to make the requisite distributions
of income to its shareholders which will be sufficient to relieve it
from all or substantially all federal income taxes.
(d) Restricted Securities - The Funds own some securities which are
unregistered and thus restricted as to resale. These securities are
valued at their fair value, which at December 31, 1999 is equal to
cost. Where future disposition of these securities requires
registration under the Securities Act of 1933, the Funds have the
right to include these securities in such registration, generally
without cost to the Funds. The Funds have no right to require
registration of the unregistered securities. The Capital
Appreciation and Growth Funds had restricted securities with an
aggregate market value of $157,886 and $129,056, respectively,
representing 8.5% and 9.7%, respectively, of the net assets of each
of the Funds.
(e) Options Contracts - The Funds purchase put options to hedge portfolio
investments. Premiums paid for options contracts purchased are
included in the Statements of Assets and Liabilities as an asset.
Option contracts are valued at the last sales price reported on the
date of valuation. If no sale is reported, the option contract
purchased is valued at the mean of the current bid and asked price
reported on the day of valuation. When option contracts expire or
are closed, realized gains or losses are recognized without regard to
any unrealized gains or losses on the underlying securities.
(f) Distributions to Shareholders - Dividends from net investment income
and net realized capital gains, if any, will be declared and paid at
least annually. Distributions to shareholders are recorded on the
ex-dividend date. Each Fund may periodically make reclassifications
among certain of its capital accounts as a result of the timing and
characterization of certain income and capital gains distributions
determined in accordance with federal tax regulations, which may
differ from GAAP. Accordingly, at December 31, 1999,
reclassifications were recorded to increase undistributed net
investment income by $11,605 and $10,650; decrease accumulated net
realized gain (loss) on investments by $11,086 and $10,275; and
decrease capital stock by $519 and $375 for the Capital Appreciation
and Growth Funds, respectively.
<PAGE>
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(g) Initial Public Offerings - The Funds may invest in initial public
offerings ("IPOs"). IPOs and other investment techniques may have a
magnified performance impact on a Fund.
(h) Other - Investment transactions are accounted for on the trade date
basis. Each Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the
security lot sold with the net sale proceeds. Dividend income is
recognized on the ex-dividend date and interest income is recognized
on an accrual basis.
(3) Investment Advisory Agreement
-----------------------------
The Funds have an agreement with Van Wagoner Capital Management, Inc. (the
"Adviser") to furnish investment advisory services to the Funds. Under the
terms of this agreement, the Adviser is compensated at the rate of 1.25%
and 1.00% of the average daily net assets of the Capital Appreciation Fund
and Growth Fund, respectively. The Adviser has agreed to voluntarily
reduce fees for expenses (exclusive of brokerage, interest, taxes and
extraordinary expenses) that exceed the expense limitation of 1.95% for
each Fund until January 1, 2001. Expenses of $80,423 and $76,154 were
waived in the Capital Appreciation and Growth Funds, respectively, during
the year ended December 31, 1999.
(4) Service and Distribution Plan
-----------------------------
The Funds have adopted a Service and Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by
the Funds in connection with the distribution of their shares at an annual
rate, as determined from time to time by the Board of Directors, of up to
0.25% of each Fund's average daily net assets. No fees were paid under the
plan in 1999.
<PAGE>
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) Investment Transactions
-----------------------
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the year ended December 31, 1999 were as
follows:
Capital
Appreciation Growth
Fund Fund
------------ ------------
Purchases $3,092,188 $2,672,271
Sales 4,431,862 3,634,008
The cost of securities on a tax basis at December 31, 1999 for the Capital
Appreciation Fund and Growth Fund was $260,413 and $326,266, respectively.
These amounts include the proceeds on short sales reflected in the
Statements of Assets and Liabilities. At December 31, 1999, gross
unrealized appreciation and depreciation on investments for federal income
tax purposes were as follows:
Capital
Appreciation Growth
Fund Fund
------------ ------------
Unrealized appreciation $864,750 $722,994
Unrealized depreciation (3,313) (3,313)
---------- ----------
Net unrealized appreciation
on investments $861,437 $719,681
========== ==========
(6) Short Positions
---------------
When a Fund sells a security short, an amount equal to the sales proceeds
is included in the Statements of Assets and Liabilities as an asset and an
equal amount as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the security sold short.
Subsequent fluctuations in the market prices of securities sold short may
cause the liability to differ from that reflected in the Statements of
Assets and Liabilities. The Fund is liable for any dividends paid on
securities sold short. The Fund maintains assets consisting of cash or
liquid securities equal in amount to the liability created by the short
sale. These assets are adjusted daily to reflect changes in the value of
the securities sold short.
<PAGE>
To the Board of Directors and Shareholder of
the Van Wagoner Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Van Wagoner Capital Appreciation Fund and
the Van Wagoner Growth Fund (the "Funds") as of December 31, 1999, and the
related statements of operations, changes in net assets, and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets and the financial
highlights prior to 1999 were audited by other auditors whose report dated
January 29, 1999 expressed an unqualified opinion.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of December 31, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1999 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Van Wagoner Capital Appreciation Fund and the Van Wagoner Growth Fund at
December 31, 1999, the results of their operations, the changes in their net
assets and the financial highlights for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
February 11, 2000
